Recording Transactions :: Bank a/c in Cash Book & in Pass Book :: Comparative Analysis

why and what to analyse

Both the bank and the organisation are concerned with the transactions that affect bank account in an organisation. It would be of help for us to understand how the transactions are viewed and dealt with in the books of the organisation as well as by the bank.

To help us understand this we will consider the following transactions.

Aug 1st : Paid Cash into bank (new account opened) 18,000.
5th : Issued a cheque (No. AS01) to Sam 5,400 in full settlement of 5,500 due.
8th : Received a cheque (No. MG41) for 12,000 towards sale proceeds and deposited the same into bank.
11th : Issued a cheque for 4,920 (No. AS02) to a supplier Jax & Co in full settlement of the amount due of 5,000.
13th : Withdrawn for Mr. Rao's personal use by cheque (No. AS03) 5,000
14th : Mr. Rao, issued a cheque (No. TR82) for 50,000 towards additional capital 50,000.
15th : Issued a cheque (No. AS04) for 24,000 towards purchase of Furniture.

To make it easy we are considering the same transactions we have dealt with earlier in knowing how these are recorded and appear in the books of the bank as well as the organisation.

Bank a/c in Organisation's Books

We assume that the organisation maintains a Triple Column Cash Book (subsidiary book).
Cash Book
Dr Cr
Date Particulars L/F D/A Cash Bank Date Particulars L/F D/R Cash Bank
To Cash
To Sales
To Capital

By Bank
By Sam
By Jax & Co
By Drawings
By Furniture
By Balance c/d


  Total       80,000   Total       80,000
16/8 To Balance b/d     40,680            

Pass Book as per Bank Books

We assume that the cheques received by the organisation have been deposited into the bank account and the cheques issued to outsiders have been presented for payment to the bank.
M/S Manzil Enzymes
Date Particulars Cheque No Withdrawal
Balance Initial
By Cash (Deposit)
To Cheque (Sam)
By Cheque (Collection)
To Cheque (Jax & Co)
By Cheque (Self)
By Cheque (Pine Wood Traders)
To Cheque (Collection)
By Collection Charges







Comparative analysis of recording in both books

Analysis of the recording of the above transactions in both the books, with regard to aspects other than the debit and credit.
  1. Cash Paid into Bank

    The transaction results in amount being paid into the bank. This transaction is recorded in the organisation's books and the Bank books on the same date. Therefore, after the transaction is complete, we can notice that the balance in the Bank a/c (in cash book) and the customer a/c in the bank books is the same.

    The organisations money is with the bank.

    • For the organisation, the bank is a debtor. Therefore Bank a/c in the organisation books shows a debit balance.
    • For the bank, the organisation is a creditor. Therefore Organisation a/c in the bank books shows a credit balance.
  2. Cheques Issued

    It is a general practice that, money can be withdrawn from the bank using a withdrawal form, if the withdrawal form is accompanied by the pass book. This is generally done in case of personal accounts.

    With regard to bank accounts maintained by business organisations, let us assume that this is not done. Even the cash, the business organisation needs is withdrawn using a cheque. Therefore, we can say that the organisation issues cheques either for withdrawing cash from the bank or to the customers of the business towards the amounts payable to them.

    Bearer Cheques

    Cheques which can be presented at the bank and payable by the bank across the counter are called bearer cheques. If an organisation has issued a bearer cheque it is capable of being presented and encashed immediately on the day it is issued.

    The cheque (No: AS01) issued to Mr. Sam on Aug 5th is paid by the bank on the same date. On the assumption that this is a bearer cheque, it can be identified that it has been presented for payment across the counter on the same day i.e. Aug 5th.

    The cheque (No. AS03) issued for the amount drawn by Mr. Rao for personal purposes is also a similar cheque and as such has been paid by the bank on the same date the cheque has been issued.

    Account payee Cheques

    Cheques which are payable only to a bank are account payee cheques. These cheques are typically crossed with parallel lines on the top left edge of the instrument indicating that they are crossed. They are not paid across the counter of the bank. They are to be presented to the bank through the banker of the person/organisation who is mentioned as the payee of the cheque.

    Therefore, an account payee cheque is handed over to the payees banker (deposited in the bank) for collection. The banker would send this cheque to the relevant bank and collect the amount for the payee who is its customer.

    When an account payee cheque is issued by an organisation, it would have to be deposited by the recipient in his/her/its bank account and the banker should send it to the organisations bank for collection. Thus the date of actual payment of the cheque by the bank would be further to the date of issue of the cheque by the organisation.

    This should explain the reason why,

    • the cheque (No: AS02) issued to M/S Jax & Co on Aug 11th was paid by the bank on Aug 12th
    • the cheque (No: AS04) issued on Aug 15th towards the payment for purchase of furniture is paid by the bank on Aug 17th.

    Validity of a Cheque » Stale Cheque

    A cheque is valid for 6 months from the date of its issue, unless specifically stated otherwise. The cheque which has become invalid on account of becoming out of date is called a stale cheque

    Relevant Provisions from the Negotiable Instruments Act, 1881

    Sec 5 "Bill of exchange" : A "bill of exchange" is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.

    A promise or order to pay is not "conditional" within the meaning of Sec 5 and Sec 4, by reason of the time for payment of the amount or any instalment thereof being expressed to be on the lapse of a certain period after the occurrence of a specified event which, according to the ordinary expectation of mankind, is certain to happen, although the time of its happening may be uncertain.

    The sum payable may be "certain", within the meaning of Sec 5 and Sec 4, although it includes future interest or is payable at an indicated rate of exchange, or is according to the course of exchange, and although the instrument provides that, on default of payment of an instalment, the balance unpaid shall become due.

    The person to whom it is clear that the direction is given or that payment is to be made may be "certain person", within the meaning of Sec 5 and Sec 4, although he is misnamed or designated by description only.

    Sec 6 "Cheque" : A "cheque" is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.

    Sec 13(1) "Negotiable instrument" : A "negotiable instrument" means a promissory note, bill of exchange or cheque payable either to order or to bearer.

    Sec 138 "Dishonour of cheque for insufficiency, etc., of funds in the accounts" : A "negotiable instrument" means a promissory note, bill of exchange or cheque payable either to order or to bearer.

    provisio a : the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier.

  3. Cheques Deposited

    A bearer cheque can be collected across the counter and a crossed cheque should be presented through the banker for collection. When you deposit a cheque for collection, the banker would not credit (deposit) the customers account with the amount of the cheque. The banker records the cheques sent for collection in a separate book and would credit the customers account only if the cheque has been collected. If the cheque is dishonoured, no credit would be made.

    Clearing House

    Every district has lead bank. A lead bank is entrusted with the responsibility of coordinating the efforts of all credit institutions (banks and others) in the allotted districts to increase the flow of credit. Generally the bank that has relatively large network of branches within the district, especially the rural areas is appointed the lead banker to the district.

    Lead banks maintain a clearing houses in all locations within a district, where all the bankers meet once or twice every day to clear the cheques that have been deposited by their customers for collection. The representative of each bank brings along with him/her the cheques which have been deposited by their customers for collection and which have been drawn on other branches of their own bank or on other banks. These cheques are exchanged by the banks and only the net amounts are transferred from one bank to another.

    Say Bank "A" has cheques drawn on bank "B" with it worth 2,00,000 and bank "B" at the same time has cheqes drawn on bank "A" worth 1,80,000. Both bank "A" and bank "B" would meet at the clearing house and exchange the cheques on the first day and a record of all the cheques is made by each. They go back to their branches, check the accounts of the persons/organisations who issued the cheques to ensure that they have sufficient balance to honour the cheques. After ensuring that the cheques can be paid they would get back the next day and make the final settlement. Bank "B" needs to transfer 20,000 to bank "A" to settle the transaction. The clearing house eliminates the need for bank "A" to raise a fund of 1,80,000 and bank "B" to raise of fund of 2,00,000 to make a settlement in this regard.

    When an account payee cheque is given to the organisation (received by it), it would have to deposit the same in its bank account and the banker should send it to the relevant bank for collection. Thus the date of actual receipt of the cheque and the date on which the amount has been credited by the bank in the organisations account in the bank would be different. The date of credit would be further to the date of receipt of the cheque.

    This should explain the reason why,

    • The cheque (No: MG41) received by M/s Manzil Enzymes, towards sale proceeds on Aug 8th and deposited in the bank is credited by the bank on Aug 12th.
    • The cheque (No: TR82) received by M/s Manzil Enzymes, towards additional capital contribution of the proprietor on Aug 14th and deposited in the bank is credited by the bank on Aug 18th.
  4. Bank Charges

    The bank would collect charges from the customer from time to time for various reasons.

    Issue of new cheque book, postal charges for sending a cheque book, collection charges for collecting outstation cheques, commission/charges for collecting insurance claims, dividends, interest on securities etc., transfer charges for transferring funds, incidental charges related to some service provided by the bank to the customer, etc.

    Generally, the bank debits the charges to the customers account and would intimate the customer of the same. The customer would record the information on the day on which it is received. Therefore, it is possible that the date on which the bank has debited these charges and the date on which the customer has recorded the same on receipt of information to be different.

    This should explain the reason why the collection charges debited by the bank on Aug 18th, have not yet been recorded in the cash book. The organisation might not have received the information relating to the charges made by the bank.